Get Indexology® Blog updates via email.

In This List

Low Volatility: Active or Passive?

Low Volatility: Active or Passive?

Contributor Image
Craig Lazzara

Former Managing Director, Index Investment Strategy

S&P Dow Jones Indices

A recent posting suggested that institutional investors interested in exploiting the low volatility anomaly should do so by using active managers rather than one of the several passive vehicles available.  Far be it from me to criticize anyone for talking his own book, since I’m about to do it – but this is reminiscent of the debate that active and passive managers have been having for at least the last 30 years.  Despite the assertions in the article, there’s abundant evidence that passive indices can deliver access to the low volatility effect quite efficiently.

I suspect that both active and passive managers of low volatility strategies could agree on two propositions:

  • Active low vol or minimum variance strategies should be compared to low volatility indices, not to broad benchmarks like the S&P 500 or Russell 1000.  Doing so systematically is the only way to evaluate the author’s claim that active implementation beats passive in this space.
  • Regardless of implementation method, the low volatility anomaly is worth a very serious look for any alpha-seeking institution or individual.

The posts on this blog are opinions, not advice. Please read our Disclaimers.